AU Small Finance Bank gains 4%, hits record high on bonus issue plan

The board of directors of the bank shall meet early next week to consider the proposal for issuance of bonus shares.

Shares of AU Small Finance Bank hit a record high of Rs 1,441, gaining 4 per cent on the BSE in Tuesday’s intra-day in an otherwise subdued market after the private sector lender said the bank’s board will meet next week to consider bonus issue proposal. The stock surpassed its previous high of Rs 1,428 touched on April 13, 2022.

“A meeting of the board of directors of the Bank will be held on Monday, 25 th April, 2022 and will continue on Tuesday, 26th April, 2022 to consider the proposal for issuance of bonus shares, subject to requisite approvals,” AU Small Finance Bank said in an exchange filing.

The board will also consider the audited financial results of the Bank for the quarter and financial year ended on 31st March, 2022; and recommend dividend, if any, on equity shares for the financial year ended 31st March, 2022, the Bank said.

AU Small Finance Bank has outperformed the market by surging 24 per cent in the past one month, as compared to 1 per cent decline in the S&P BSE Sensex.

Last week, the rating agency CARE Ratings assigned a rating of CARE AA; Stable (Double A; Outlook: Stable) to the long-term debt instruments (Tier-II Bonds) of the Bank. The rating on short-term instruments (Certificate of Deposits) of the Bank has been reaffirmed at CARE Al+ (A One Plus).

The ratings assigned to the debt instruments of AU Small Finance Bank Limited factor in the continued momentum of growth in business and size, post-conversion into a small finance bank (SFB) in April 2017, the establishment of deposit franchise along with a sizeable Current Account Savings Account (CASA) deposits, and a moderately-diversified advances portfolio with a largely secured lending portfolio, CARE Ratings said in rationale.

As per the Reserve Bank of India (RBI) guidelines, AU Small Finance Bank will be eligible to apply to convert into a universal bank or after a review, RBI may increase its scope of activities after a satisfactory track record of five years of operating as a SFB.

However, the conversion would be subject to RBI approval. While the bank would benefit from conversion into a universal bank with the minimum threshold of lending to priority sector reducing from 75 per cent to 40 per cent, the bank’s asset strategy would largely continue in line with the current asset profile, and CARE Ratings does not expect the bank to have significant exposure to large-ticket corporate lending for the medium-term, even in case of conversion into a universal bank.

Tech view
Outlook: Cautiously optimistic

Resistance: Rs 1,463

Support: Rs 1,289

The stock of AU Small Finance Bank has been in an uptrend since March 31. So far during the month of April, the stock has zoomed around 11 per cent till Monday as against a 2.3 per cent decline in the benchmark S&P BSE Sensex. 

However, after a one-way rally the stock is likely to take a breather around Rs 1,463 levels, which is the higher end of the Bollinger Band. If the stock breaches this level on the upside, it may hit Rs 1,535 levels as per Fibonnaci charts. It's immediate trendline support is placed at Rs 1,289 levels. 

The price-to-movong averages suggest optimism in the stock as the 20-Day Moving Average (DMA), 50-DMA, and 100-DMA are showing positive crossovers.

That said, momentum indicators are showing mixed trend with the 14-day Relative Strength Indicator (RSI) mildly in the overbought zone, and the slow Stochastic indicator showing a slowdown in the rally. However, the MACD is firmly above the zero line while the Directional Index is showing strength in the positive bias. Thus, the stock may continue to rally ahead, although at a lesser pace.

(With inputs from Nikita Vashisht)